Investment instruments

Various types of securities are traded in the market. Broadly securities represent evidence to property right. Security provides a clean on an asset and any future cash flows the asset may generate. Commonly we think of securities as shares and bonds. According to the securities contract Regulation Act 1956, security include shares, scrips, stocks, bonds, debentures or other marketable like securities of any incorporated company or other body corporate or government. Securities are classified on the basis of return and the time span of investment and risk involved in it. Basis on time span of investment it is of two types: 

 a) long term investment

 b) short term investment

Long term investment

When the investment is done for more than one period of time is term as long term investment. The examples of long-term investments are equity shares, preference shares, debentures, bonds etc

Equity shares: equity shares are commonly referred to a common stock or ordinary shares. Even though the worst shares and stocks are interchangeably used, there is a difference between them. Share capital of a company is divided into a number of small units of equal value called shares. The term stock is the aggregate of a members fully paid up shares of equal value must into 1 fund. It is a set of shares put together in a bundle. The stock is expressed in terms of money and not as many shares. Stock can be divided into fraction of any amount and such fraction may be transferred like shares. 

Share certificate means a certificate under the common seal of the company specifying the number of shares held by any member. Share certificate provide the prima facie evidence of title of the members to such shares. This gives the shareholder facility of dealing more easily with his shares in the market. It enables him to sell his shares by showing marketable title.

Preference shares: the characters of the preferred stocks are somewhat mix in nature. Some of its features invisible the bond and others the equity shares. Have preferential rights on the company's dividend. Like the bonds, dear clips on the companies in Kamal limited and receive fixed dividend. In the event of liquidation of the company their claims on the assets of the former also fixed. At the same time like the equity, it is a perpetual liability of the corporate. The decision to pay dividend to the preferred stock is at the discretion of the board of directors. 

The dividend received by the preference stock is treated on par with the dividend received from the equity shares for the tax purposes. The shareholders do not enjoy any of the voting powers except when any resolution affects their rights.

Debenture: According to Companies Act 1956, " Debenture includes debenture, stock bonds and any other securities of company, weather constituting a charge on the assets of the company or not". Defences are generally issued by the private sector companies as a long-term promissory notes for raising loan capital. The company promises to pay interest and principal as stipulated. Wanderson alternative form of debenture in India. Public sector companies and Financial institutions issue bonds.

Bond: Bond diesel long term debt instrument that promises to pair fixed annual some as interest for specific period of time. The basic features of the bonds are: they have face value. The face value is called par value, the bonds may be issued at par or a discount. The interest rate is fixed. Sometimes it may be variable as in the case of floating rate bond. Interest is paid semi annually or annually. Interest rate is known as coupon rate. Interest rate is specified in bond certificate. The maturity date of the bond is usually specified at the issue time except in the case of perpetual bonds.

Short term investments

When the investment is done for the period of 0days up to one year is termed as short-term investments. This type of investment involve low risks, therefore the return will be minimal compared to the long term investments. The short-term investments include call or notice money, term money, treasury bills, certificate of deposit and commercial papers.

Call or notice money: Call money is minimum 5% short-term finance repayable on demand, with a maturity period of one to fourteen days or overnight to a fortnight. It is used for inter-bank transactions. The money that is lent for one day in this market is known as "call money" and, if it exceeds one day, is referred to as "notice money." Sundays are excluded in days and there will be no collateral needed to get this money.

Term money: The money that is lent for more than 14days in this market is known as "Term money". Sundays are excluded in days and there will be no collateral needed to get this money.

Treasury bills: Treasury bills are money market instruments issued by the Government of India as a promissory note with guaranteed repayment at a later date. Funds collected through such tools are typically used to meet short term requirements of the government, hence, to reduce the overall fiscal deficit of a country. treasury bills are issued by RBI behalf of Central government to meet short term requirement of funds.

Certificate of deposit: A certificate of deposit is a time deposit, a financial product commonly sold by commercial banks, thrift institutions, and credit unions. These are issued to individuals, companies, corporations etc. Return of certificate of deposit is higher than meat recipe bills because it involves high risk.

Commercial paper : Commercial papers are short term unsecured promissory note which are negotiable and transferable by endorsement in fixed maturity period. The sum issued by large creditworthy company trees short term funds at lower rates of interest than market. The maturity period of commercial papers lies between 15 days to 1 year. Deserve solder discount and redeemed at par. The main aim of commercial paper is to provide seasonal and working capital to the institutions.

Reference:  security Analysis and Portfolio Management by Punithavathy Pandian